1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -----------------------
Commission file number 0-15392
Faircom Inc.
(Exact name of registrant as specified in its charter)
Delaware 87-0394057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Glen Head Road, Old Brookville, New York 11545
(Address of principal executive offices)
(516) 676-2644
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 14, 1995:
Common Stock, par value $.01 7,378,199
- ---------------------------- ---------------------
(Title of each class) (Number of Shares)
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended Three months ended
September 30, September 30,
------------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
Gross broadcasting
revenues $ 4,249,348 $ 4,069,747 $ 1,469,828 $ 1,517,121
Less: agency
commissions (500,578) (449,541) (177,155) (172,711)
----------- ----------- ----------- -----------
Net broadcasting
revenues 3,748,770 3,620,206 1,292,673 1,344,410
----------- ----------- ----------- -----------
Programming and
technical expenses 899,815 830,222 313,881 276,946
Selling, general and
administrative
expenses 1,288,735 1,276,004 449,833 428,466
Depreciation and
amortization 180,000 184,500 60,000 61,500
Corporate expenses 219,419 183,804 67,476 82,955
----------- ----------- ----------- -----------
Operating expenses 2,587,969 2,474,530 891,190 849,867
----------- ----------- ----------- -----------
Income from operations 1,160,801 1,145,676 401,483 494,543
Interest expense (612,721) (560,730) (201,966) (187,014)
Gain from sale of
radio station -- 890,766 -- 890,766
Other income 5,957 4,883 2,038 1,515
----------- ----------- ----------- -----------
Income before
preferred stock
dividend requirement
of subsidiaries, provision
for appraisal rights and
provision for income
taxes 554,037 1,480,595 201,555 1,199,810
Preferred stock
dividend requirement
of subsidiaries -- 148,590 -- 30,480
Provision for
appraisal rights 438,000 -- 438,000 --
Provision for
income taxes 55,000 54,156 20,000 39,156
----------- ----------- ----------- -----------
Net income (Loss) $ 61,037 $ 1,277,849 $ (256,445) $ 1,130,174
=========== =========== =========== ===========
2
3
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
Nine months ended Three months ended
September 30, September 30,
------------------------- --------------------------
1995 1994 1995 1994
---- ---- ---- ----
Primary net income (loss)
per common share $ .01 $ .17 $ (.03) $ .15
=========== ========== =========== ==========
Weighted average shares
outstanding-primary 7,378,199 7,378,199 7,378,199 7,378,199
=========== ========== =========== ==========
Fully diluted net
income (loss) per
common share $ -- $ .17 $ (.02) $ .15
=========== ========== =========== ==========
Weighted average shares
outstanding-fully
diluted 16,459,701 7,378,199 16,459,701 7,378,199
=========== ========== =========== ==========
3
4
FAIRCOM INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1995 1994
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 248,985 $ 252,276
Accounts receivable (less allowance
of $20,000 for possible losses in
1995 and 1994) 961,212 956,321
Prepaid expenses 44,172 37,507
------------ ------------
Total current assets 1,254,369 1,246,104
------------ ------------
Property and equipment, at cost 6,110,540 5,940,485
Less accumulated depreciation and
amortization (4,866,483) (4,758,483)
------------ ------------
Property and equipment, net 1,244,057 1,182,002
------------ ------------
Intangible assets (net of accumulated
amortization of $446,435 in 1995 and
$401,435 in 1994) 1,697,002 1,742,002
Other assets:
Deferred financing costs 221,805 248,805
Other 70,000 70,000
------------ ------------
1,988,807 2,060,807
------------ ------------
$ 4,487,233 $ 4,488,913
============ ============
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable $ 69,992 $ 45,039
Accrued expenses and liabilities 272,897 285,651
Taxes payable 55,150 121,068
Current portion of interest payable 234,404 187,975
Current portion of long-term debt 492,757 490,142
Current portion of obligations under
capital leases 20,662 20,662
------------ ------------
Total current liabilities 1,145,862 1,150,537
------------ ------------
Long-term debt, less current portion 7,951,883 8,347,547
Interest payable, less current portion 533,957 618,628
Obligations under capital leases,
less current portion 4,091 19,798
Appraisal rights liability 1,150,000 712,000
------------ ------------
Total liabilities 10,785,793 10,848,510
------------ ------------
Capital Deficit:
Common stock, $.01 par value, 35,000,000
shares authorized, 7,378,199 shares
issued and outstanding 73,782 73,782
Additional paid-in capital 2,605,813 2,605,813
Deficit (8,978,155) (9,039,192)
------------ ------------
Total capital deficit (6,298,560) (6,359,597)
------------ ------------
$ 4,487,233 $ 4,488,913
============ ============
4
5
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30, 1995 September 30, 1994
------------------ ------------------
Cash flows from operating activities:
Net income $ 61,037 $ 1,277,849
--------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 180,000 184,500
Preferred stock dividend
requirement of subsidiaries -- 148,590
Provision for appraisal rights 438,000 --
Gain from sale of radio station -- (890,766)
Increase(decrease) in cash flows
from changes in operating
assets and liabilities, net
of effects of sale of
radio station:
Accounts receivable (4,891) (128,190)
Prepaid expenses (6,665) (3,312)
Other assets -- (12,670)
Accounts payable 24,953 (4,412)
Accrued expenses and
liabilities (12,754) (81,763)
Taxes payable (65,918) --
Interest payable (38,242) (3,506)
--------- -----------
Total adjustments 514,483 (791,529)
--------- -----------
Net cash provided by
operating activities $ 575,520 $ 486,320
--------- -----------
5
6
FAIRCOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED) (UNAUDITED)
Nine months ended
September 30, 1995 September 30, 1994
------------------ ------------------
Cash flows from investing activities:
Sale of radio station $ -- $ 1,700,000
Purchase of radio station -- (496,250)
Capital expenditures (170,055) (26,416)
--------- -----------
Net cash (used in) provided by
investing activities (170,055) 1,177,334
--------- -----------
Cash flows from financing activities:
Borrowing for the purchase of
radio station -- 421,250
Principal payments on long-term
debt (393,049) (2,081,104)
Principal payments under capital
lease obligations (15,707) (27,276)
Payments for deferred financing
costs -- (13,500)
--------- -----------
Net cash used in
financing activities (408,756) (1,700,630)
--------- -----------
Net decrease in cash and cash
equivalents (3,291) (36,976)
Cash and cash equivalents at
beginning of period 252,276 211,179
--------- -----------
Cash and cash equivalents at
end of period $ 248,985 $ 174,203
========= ===========
6
7
FAIRCOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for completed financial statements. In the opinion of management, the
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The results of operations for any interim period are not necessarily
indicative of the results for a full year.
It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as filed with the Commission.
7
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company's net broadcasting revenues increased 3.6% to $3,749,000
in the nine months ended September 30, 1995 from $3,620,000 in the nine months
ended September 30, 1994, and declined 3.8% to $1,292,000 in the three months
ended September 30, 1995 from $1,344,000 in the three months ended September
30, 1994. Net revenues in the nine months ended September 30, 1995 as compared
with the 1994 period increased as a result of higher net revenues at the
Company's Flint, Michigan radio stations. This increase was offset in part by
the absence in the 1995 period of any net revenues from a radio station in
Southampton, New York, formerly owned by the Company and sold in August 1994.
Net revenues increased in the Flint stations as a result of higher local and
national advertising revenues generated by increased economic activity in the
market and nationally. Net revenues declined in the three months ended
September 30, 1995 as compared with the 1994 period because the absence of any
Southampton revenues in the 1995 period offset net revenue increases in Flint.
However, the Flint net revenue increases in the third quarter of 1995 were
minimal as a result of softer advertising activity in the market and
nationally in the 1995 third quarter, as compared with the rate of increases
experienced in the first six months of 1995.
Operating expenses before depreciation, amortization and corporate
expenses increased by 3.9% to $2,189,000 in the nine months ended September 30,
1995 from $2,106,000 in the comparable 1994 period, and by 8.3% to $764,000 in
the three months ended September 30, 1995 from $705,000 in the three months
ended September 30, 1994. In the nine month and three month periods ended
September 30, 1995 as compared with the same periods in 1994, expenses
increased as a result of increased operating expenses in both 1995 periods at
the Flint stations, offset by the absence in the 1995 periods of operating
expenses in the Southampton station formerly owned by the Company. Operating
expenses increased in Flint in both 1995 periods due to higher promotion and
advertising expense, the cost of new syndicated programming and higher variable
sales expense related to higher revenue levels.
Net broadcasting revenues in excess of operating expenses before
depreciation, amortization and corporate expenses ("broadcast cash flow")
increased 3.1% to $1,560,000 in the nine months ended September 30, 1995 from
$1,514,000 in the comparable 1994 period, and declined 17.2% to $529,000 in the
three months ended September 30, 1995 from $639,000 in the 1994 period. The
increase in the nine months ended September 30, 1995 resulted from higher
broadcast cash flow in Flint, offset by the absense in the 1995 period of any
broadcast cash flow from Southampton. The decrease in the three months ended
September 30, 1995 was due to lower broadcast cash flow in Flint as compared
with the 1994 period, and the absence of any broadcast cash flow from
Southampton in the 1995 period.
8
9
Corporate expenses increased by 19.4% to $219,000 in the nine months
ended September 30, 1995 from $184,000 in the comparable 1994 period, and
declined by 18.7% to $67,000 in the third quarter of 1995 from $83,000 in the
comparable period in 1994. The increase in the 1995 nine month period was a
result of higher payments for employee compensation and professional fees and
the decrease in the 1995 third quarter resulted principally from lower
professional fees.
Interest expense increased by 9.3% to $613,000 in the first nine
months of 1995 from $561,000 in the corresponding period in 1994, and by 8.0%
to $202,000 in the third quarter of 1995 from $187,000 in the comparable period
in 1994. These increases resulted from higher principal amounts of interest
bearing debt outstanding and higher interest rates during the 1995 periods.
The nine months and three months ended September 30, 1995 contain no
gain from sale of radio stations. Such gain, in the amount of $891,000, was
contained in both of the comparable 1994 periods, reflecting the sale in August
1994 of the Southampton radio station formerly owned by the Company.
Preferred stock dividend requirement of subsidiaries decreased by
100.0% to zero in the nine months and the three months ended September 30, 1995
from $149,000 and $30,000, respectively, in the comparable periods of 1994.
These decreases resulted from the extinguishment of the preferred stock in a
former subsidiary of the Company as a result of the sale of the Company's
former station in Southampton in August 1994.
In the nine months and three months ended September 30, 1995 a
provision for appraisal rights of $438,000 was recorded to increase the
appraisal rights liability from $712,000 to $1,150,000. This resulted from
management's opinion that the value of its Flint stations, to which the
appraisal rights relate, increased during the 1995 nine month and three month
periods.
As a result principally of the $891,000 gain from sale of a radio
station contained in the comparable 1994 periods and not present in the nine
months and three months ended September 30, 1995, and the $438,000 appraisal
rights provisions in the 1995 periods not present in the 1994 periods, net
income declined to $61,000 from $1,278,000 and to a loss of $(256,000) from net
income of $1,130,000, respectively. The gain from sale of a radio station
accounted for $.12 of the primary and fully diluted per share earnings in the
nine and three month periods ended September 30, 1994.
Liquidity and Capital Resources
In the nine months ended September 30, 1995, net cash provided by
operating activities was $576,000 compared with $486,000 in the comparable 1994
period. Net decrease in cash and cash equivalents was $3,000 in 1995 compared
with a net decrease of $37,000 in 1994. The net decrease in cash and cash
equivalents in the 1995 period was due primarily to capital
9
10
expenditures for a building addition for increased sales and office space and
for studio alterations at the Company's Flint facilities.
Historically, the Company's net cash provided by operating activities
is lower in its first and second quarters, and the Company expects such net
cash to increase in the balance of 1995.
Based upon current interest rates, the Company believes its interest
expense for the balance of 1995 will be approximately $239,000. Scheduled debt
principal payments are $121,000. Corporate expenses and capital expenditures
for the remainder of 1995 are estimated to be approximately $131,000 and
$3,000, respectively. The Company expects to be able to meet such interest
expense, debt repayment, corporate expenses and capital expenditures,
aggregating $494,000, from net cash provided by operations and current cash
balances.
The Company is examining various alternatives for obtaining funds for
station acquisitions. No assurance can be given that the Company will
successfully consummate any such acquisitions or any such financing.
10
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule
All other items of this Part are inapplicable.
11
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRCOM INC.
(Registrant)
/s/ Joel M. Fairman
-----------------------------
Joel M. Fairman
Chairman of the Board
President and Treasurer
(Principal Executive Officer
and Chief Financial Officer)
Date: November 14, 1995
12
13
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule